BHEL: Made to order

The strong orderbook should see the firm posting some good earnings numbers.

Bharat Heavy Electricals Ltd (BHEL) has been seeing strong order inflows for the last couple of years.The latest one is worth Rs 2030 crore and is for the supply of equipment for the 1,000 mw Nabinagar thermal power project.

The firm is expected to close FY08 with orders for more than 15,500 mw compared with orders for 9,900 mw in FY07.

While the momentum could taper off in the next couple of years with orders growing at just about 5 -10 per cent in each year, the outstanding orderbook of Rs 78,000 crore as at the end of December 2007, and the additional capacity being created, would ensure that the pace of execution remains brisk.

BHEL has already ramped up its capacity to 10,000 MW and this will be further increased to 15,000 mw total investment of Rs 3,200 crore.

The stock has lost about 30 per cent since the start of the 2008, more than the fall in the Sensex, partly because of the crash in the markets but partly because of fears of a slowdown in the capex cycle, accentuated by the latest IIP numbers for January 2008.

While there could be a slowdown, BHEL appears to be in a relatively good position. The firm is expected to end FY 08 with sales of around Rs 21,500 crore a rise of 22 per cent over FY07 and a net profit of around Rs 3,000 crore.

For FY 09, the company's sales are estimated to touch Rs 30, 000 crore while the net profits should be about Rs 4000 crore, translating into an earnings of about Rs 82 FY09 and a growth of 34 per cent.

At Rs 1824, BHEL trades at about 23 times estimated FY 09 earnings. Given the growth potential for the power sector, especially in the 11 th period, the stock should do well. At Rs 2764, competitors Larsen &Toubro trades at a multiple of nearly 28 times estimated FY 09 earnings.

HDFC Bank: Bank on growth

The HDFC Bank stock has corrected by nearly 30 per cent since the start of the year to Rs 1,232 currently and at this level trades at just over 3 times the expected book value for FY09.

The bank has always traded at a premium to its peers in the industry mainly because investors have been impressed with its clean book : net non-performing loans have stayed below 0.5 per cent levels for nearly the past ten quarters.

Moreover, the bank has consistently delivered strong earnings growth possibly because of its well-balanced portfolio which comprises both corporate and retail loans.

For instance, in the December 2007 quarter the bank posted a net profit growth of 45 per cent, driven by a strong growth of 39 per cent in the loan book.

At a time when other banks have seen credit growth moderating, HDFC Bank actually upped its share of the loans in the system to 3.3 per cent from 2.7 per cent a year back.

What's more the bank had been turning in lower than expected revenues from fees; that changed in Q3FY08 with insurance premiums and fund sales picking up as also depository fees growing in a booming stock market.

What was quite impressive was that the bank posted a sequential rise in the net interest margin of 30 basis points to 4.3 per cent, despite growing its loan book aggressively.

The buyout of Centurion BoP will give it greater reach and help the combined entity grow faster. For FY08, the bank is expected to turn in a net profit of about Rs 1600 crore which could grow to Rs 2100 crore in FY09.